Hillgrove not moved by Ariadne pressure

South Australian copper miner
Hillgrove Resources
will dive into another strategic review next month, but chief executive
Greg Hall
says it is not a response to pressure from activist shareholders.

As revealed by The Australian Financial Review, Hillgrove has recently become a target for legendary corporate raider
Gary Weiss
and the investment group that he is now working for full-time,
Ariadne Australia
.

Ariadne has accumulated an 8.12 per cent holding in Hillgrove. At the start of the month, Dr Weiss wrote to the miner demanding a $50 million cash return to shareholders and new blood on the board.

But Hall says the strategic review was planned before the September capital raising that saw Ariadne join the share register, and is becoming something of an annual occurrence for Hillgrove.

Last year’s review brought about a revised mine plan for the company’s Kanmantoo copper mine in the Adelaide Hills, and decisions to install a new crusher and increase production rates at the site.

On Tuesday Hillgrove told the market Kanmantoo was tracking to meet its full-year guidance of 16,500 to 18,000 tonnes of copper, and that ore grades from the main Kavanagh Pit were improving.

That means the focus of this year’s strategic review is likely to be future plans, including the possibility of returning capital to shareholders.

However, Hall says Hillgrove’s priority is to deliver share price improvement and repay its debt. The company is aiming to be debt-free by the second half of 2015.

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Hall has met with Weiss since receiving the letter from Ariadne, and says the investor acknowledges that some debt needs to be repaid, which will ultimately affect how much capital can be returned to shareholders.

But Weiss, who rose to prominence as an investor with Ron Brierley and Guinness Peat Group, may yet be satisfied that his recommendations have been given adequate consideration.

Along with calling for the capital return, he proposed installing Ariadne director Maurice Loomes on the Hillgrove board, which is chaired by former SA premier Dean Brown.

Ariadne’s main criticism of Hillgrove relates to the destruction of shareholder value since the miner sold its stake in coal seam gas explorer Eastern Star Gas for $171 million in 2010.

Back then, Hillgrove was capitalised at more than $300 million. It is now worth less than $90 million and has since raised $133.5 million in additional capital.

Given the company’s precarious financial position,
Red 5
shareholders were hardly going to object to the $50 million share placement they voted on at an extraordinary general meeting in Perth on Friday.

But the process still had to be adhered to, and the company has now secured critical funds that will enable it to repay a $US25 million facility extended by principal lender Credit Suisse, and restart its Siana goldmine in the Philippines.

Red 5 managing director
Steve Norregaard
had to resort to a back-up plan after the company’s original one-for-one entitlement closed on August 30 without reaching the minimum subscription of $35 million.

Norregaard found that shareholders felt the price of 35¢ a share did not reflect the company’s risk profile, given that a cease and desist order enforced on Siana was still in place.

The placement was subsequently discounted to 10¢ a share. Norregaard says more than 75 per cent of the take- up was from existing shareholders.

He is more confident than ever that the Philippines government is close to lifting the cease and desist order, which was imposed because a fault was detected in a wall of the Siana tailings dam.